Wednesday, February 1, 2017

Corporate tax (or is it?) reading list

On the house and administration plans to reform the corporate tax, and my struggles to figure it out.

Larry Kotlikoff, "With Some Tweaks, The Democrats Can Love The House Tax Plan."

..the corporate tax reform, which is the most significant part of the House plan and represents a major and long overdue shift toward consumption taxation. ... there are two ways to tax consumption, C. You can either tax it directly (e.g., via a retail sales tax or a personal consumption tax) or indirectly by taxing everything available for consumption, namely output plus imports, less investment plus exports.

Consider the following tax reform:
1. Impose a retail sales tax on consumer goods and services, both domestic and imported.
2. Use some of the proceeds from the tax to repeal the corporate income tax.
3. Use the rest of the proceeds from the tax to significantly cut the payroll tax.
...
As I understand it, this plan is, in effect, what the Republicans in Congress are proposing.

The DBCFT is essentially a value-added tax (VAT), but with a deduction for wages. ...The deduction for wages makes the DBCFT progressive, relative to a VAT. It only taxes consumption financed out of holdings of capital, whereas a VAT burdens all consumption.

..A final concern is that the corporate reform proposals described above, ... would reduce federal tax revenue..Rough estimates suggest that setting the DBCFT rate at around 30 percent for all businesses would eliminate the revenue shortfall.

The revenue point, I think, makes it clear though just how far from a VAT or consumption tax this is. From the Tax Policy Center, Federal government revenues are $3 trillion—about 17.5 percent of GDP. Thus, a pure VAT of 17.5% with no Federal personal income tax, estate tax, excise tax, corporate tax, or anything else is revenue neutral. Current corporate taxes are 10 percent of government revenue and 1.5 percent of GDP over the past five years -- tiny. So if this tax needs to have a 30 percent rate just to generate 1.5% of GDP, its base must be tiny.

If we tax corporate sales, but allow corporations to deduct wages, the cost of inputs, investments (i.e., they buy forklifts for the factory, and can deduct the cost of the forklift), interest payments, and dividend payments then... there is nothing left! So, I infer that the tax base is only on interest and dividend payments.

(At least the house proposal promises to end the differing treatment of dividends and debt payments. This is excellent! The subsidy to debt is distorting our financial system towards too much debt, and we all just saw what too much debt leads to.)

This interpretation coincides with Kotlikoff's analysis that in essence what you have left is a wealth tax.

But, a tax system in which you tax $100 of sales, but offer $99 of deductions (costs, wages, earnings retained for investment), then tax only the last $1, then tax that $1 again as personal income, would seem to offer lots of room for shenanigans on just what gets deducted. Along with interesting financial engineering to "invest" more earnings and pay less dividends and interest. Similarly, a corporate wage subsidy to offset the wage taxes of payroll and personal income is not the cleanest way to do things.

I'm also still scratching my head at the idea that this does not distort investment. Yes, immediate expensing of corporate investment helps. But the tax system still includes personal income (not consumption) taxes. It still penalizes personal saving, which is needed to finance investment. For example, you give a company $100. They buy a new forklift, and make money from it. The forklift expense shields current income, or is carried over to shield $100 income against future corporate taxes. But when they pay you $5 interest next year, the corporation pays $1 tax, and you then pay more personal income tax. Your rate of return is cut in half. A tax that truly does not distort incentives to consume vs invest must not distort the individual decision to consume vs. save, no? (Or am I missing something here?)

The border adjustment appears clever. It makes it look to trade warriors that we've passed a big tariff, though it amounts to the rule that everyone pays sales tax in their own place of residence. Sort of. See also

Since a border tax adjustment wouldn’t change U.S. national saving or investment, it cannot change the size of the trade deficit. ... the exchange rate of the dollar must adjust...

I wish I knew better what we are all talking about. A historian's son, I gravitate to primary sources. The only one linked to in any of the above is Paul Ryan's Better Way tax plan. That plan has a great statement of principles and lots of great ideas for the tax code. But it is dated last June. It's a document of principles made for the campaign, back when everyone thought Mrs. Clinton would be president. I presume an actual house tax plan may look a lot different. I looked hard at Whitehouse.gov and could find no mention of taxes. The Trump campaign plan only mentions cutting the corporate rate to 15%.

What are we talking about really? Or is this all a kerfuffle interpreting the latest tweets? Are we just making this up?

Bottom line, I am beginning to understand that whatever it is these commenters are talking about has the potential to be a big improvement on the current system. However, it suffers from much of the structural defect of current Federal taxation. It's obscure. Yes, as Kotlikoff explains, you can either tax consumption directly or sneak it in by taxing its ingredients. But it would be a whole lot better for our political system -- both enacting a better tax system, keeping it from becoming overgrown with barnacles, and making continued progress towards a consumption-based tax -- if it were what it appears, not a tax that looks like one thing (corporate tax with a tariff barrier) but sneakily is something else (consumption tax with VAT treaty). Economists emphasize the difference between who pays a tax and who bears the burden of taxation (see my last post), but politically it is much better, when you can, to have who pays actually be who bears.

I say anything complicated they will just screw up, and the lack of transparency in the plan means eventually it will lead to a tax hike and furthermore a good deal of favoritism and rent-seeking along the way. Best hope is simply that they cut the corporate tax rate and don’t do much else on that front.

Holman Jenkins, "Incompetence Is the Norm" (an excellent piece on other matters)

In the short weeks since Mr. Trump was elected, the vision of clean, straight tax reform has gone out the window. Instead of merely lowering or, ideally, ending the corporate rate, we may get a 20% border-adjustment tax to go along with a 20% corporate income tax. That is, two taxes instead of one, which Congress can immediately start peppering with exemptions, exclusions and deductions.

So does one support or not an improvement with so many asterisks? Fortunately, we are not at the stage of support or not. The big pot in Washington is still stewing with ingredients.

On the one hand, there is a lot that I and my fellow bloggers don't know. Just what were the political constraints that went in to the better way tax plan? Paul Ryan, acting alone, would surely eliminate the corporate tax, income tax, estate tax, and so on, and enact a simple consumption tax or VAT in its place. So, what produced the house plan? Is the same constellation of forces still in place? What better could actually be achieved? I don't know, and it's a mistake to criticize the process and personalities too heavily if one does not know. That, alas, is the job of historians.

On the other hand, this is the one chance in my lifetimes to really reform the tax system. If we're ever going to dramatically simplify, eliminate the corporate tax, really move to a broad-based consumption tax instead of an income tax, separate revenue raising from subsidies and transfers, and so on, if not now, when? Republicans, who have been talking about these things through their years in the wilderness, now have majorities in house, senate, and have the presidency. They let this chance slip with Bush II. Will it return?

So as I read it these are still ideas floating around, and the chance for all of us to ask for more dramatic, simple, and transparent tax policy is still there.

the corporate cash flow tax is supported by some experts in both political parties. However, it has four major — probably fatal — flaws.

Three out of the four are about income distribution. Given the utter confusion all around on how this tax would work, who would bear the tax (again, see my last post - who is hurt by a tax has little to do with who bears the tax), the interaction of corporate and personal taxes (like my questions about interest and dividend taxation above), and that we are also thinking about how prices, wages, interest rates, and stock prices change in the general equilibrium, it seems to me a little presumptuous to have any clear idea about the distributional consequences of this tax.

Economists are supposed to first to understand incentives, then understand efficiency, then understand who actually bears the burden of taxes, and then move on to distribution. Distribution also collects hundreds of different polices, from the progressivity of personal taxation, the welter of deductions, the effects of social programs, and effects on prices, like how cheap things are at Walmart. Starting with a distributional analysis of every individual policy seems like a big mistake even if one wants to craft redistribution, which one must always do understanding the disincentives that redistribution engenders.

Or, as Kotlikoff summarizes a more extensive analysis,

Summers needs to get a grip.

In my last post, I skated over many of the details one must think about in moving to a consumption tax. There are many book length tax plans that work out such systems:

a) eliminates the corporate income tax, the personal income tax, and the estate and gift tax, b) introduces a value added tax (VAT), a progressive personal consumption tax on top consumers that exempts consumption financed by labor income, an inheritance tax that kicks in after the receipt of $5 million, and a Co2 emissions tax of $80 per ton, c) eliminates the ceiling on the FICA payroll tax, and d) provides a $2,000 annual payment to each U.S. citizen.

As you can tell, it's not a pure ideal, but merges ideal taxation with some of Kotlikoff's ideas on what subsidies and tax-based redistribution are desirable or politically necessary.

My Hoover colleagues Bob Hall and Alvin Rabushka also have an excellent detailed Flat Tax plan that fills in the details of another way to achieve a progressive consumption tax. Recommended.

I should have found these long ago, serious academic papers describing the border-adjusted cashflow tax. I have only read the abstracts, but they seem predicated on taxing corporate "rents," an interesting and perhaps somewhat fragile restriction that I doubt will make it in to policy. (In the usual use of the term it means that competitive businesses would face no tax.)

36 comments:

I have a question related to a VAT. It seems that there would be an incentive to cheat if the tax was too onerous. I would view that as a feature. What level do you think it would start to be noticeable? I am guessing it would start really being a problem if people leave the country and use the duty free stores to do regular shopping. One thing, to me, that is important is that the VAT be on the receipt. Another words not built into the price of the good. I think it is important for the tax to be transparent to those ultimately paying for it. That is one of my larger complaints on the VAT in the UK it is already rolled into the price. I think would help keep the rates from going up.

Fuel prices, right now, have the tax built in; therefore, consumers don't know how much of the cost of a gallon of petrol is and blame any increases on producers when it may be increases in the local taxes that cause DC petrol prices to higher than VA for instead.

The Federal VAT was introduced as the "GST" in 1989. It covers most goods and services. It started at 7% and replaced a tax levied on manufacturers on manufactured goods which was a burden on manufacturing. It was brought in at about the same time as the Canada US free trade agreement. Both had been proposed before an election in late 1988 and implemented after the election.

I think the consensus is that it collected more revenue than expected and was a piece of what sorted out Canada's finances in the 1990s. There were some Federal spending caps and other tax increases which also helped.

Since then it has been combined with the retail sales taxes in most Provinces with the Provinces piggybacking on the Federal tax. In those Provinces where the taxes are combined it is known as the HST.

It was financially successful but wildly unpopular with right wing populists who called it a tax grab and said that "GST" stood for the Gouge and Screw Tax. The Federal rate has been reduced from 7% to 5% by a Conservative government who were appeasing their base.

Overall I would say that it (1) contributed to improvement in a bad Federal financial situation; (2) was mildly positive economically because it removed the Manufacturers Sales Tax from exports and from capital equipment.

I saw references recently to international studies that show that a one percent point increase in a VAT will result in a 1% drop in consumer sales (suggesting consumers are budget constrained) so VATs are not some sort of panacea.

I think it is worth emphasizing how unpopular the GST was in Canada. The Progressive Conservatives ("PCs") consulted widely about it and proposed it at 9% before the 1988 election. The 1988 election got hijacked by the debate over the Canada US free trade agreement. The PCs won and then the push back started. The tax was brought in at 7% amid a rising outcry.

The PC government was hit from the left for trying to cut spending and from the right for raising taxes and not cutting spending enough. In 1993 there was a new right wing populist party that split the vote and the PCs were decimated at the polls - they went from being government to having two members of Parliament and being the fifth party in Parliament. (IIRC, the Quebec separatist party was the second largest and so became "Her Majesty's Loyal Opposition")

Absalon,Clearly the removal of the manufactured goods tax mitigated, to some degree, the introduction of GST. What was the balance? i.e. what percentage each (GST=7%; MfgGds=?%)? And what was the net effect on (after tax) prices?One would think that people's attitudes should be determined by the final price as long as they had the same old amount of money to spend. Of course populist propaganda often is much more powerful than reason.--E5

The Manufacturers' Sales Tax was 13.5% (I think levied on the factory gate price). It was a hidden tax so consumers did not see it.

The GST was a "Goods and Services Tax" (hence GST) and was explicitly shown on the invoice. As a value added tax businesses collect GST, deduct the GST they have paid on purchases, and remit the difference to Canada Revenue. There are concerns expressed at the administrative cost of tracking all of the charges and credits.

Overall the effect on consumer cost was probably a small increase but Canada's deficit was a problem and the cost increase represented additional revenue.

I think there is a caution for American conservatives in Canada's experience. The intellectually inclined conservatives supported the tax and as a result became irrelevant to Canada's political scene from 1993 to 2003 (in 2003 the break away populists merged with the remnants of the Progressive Conservative Party). There were multiple factors that led to the PCs being crushed in 1993 but the GST was a big one.

"politically it is much better, when you can, to have who pays actually be who bears."

If you are a libertarian, that is politically better. For others, maybe not so much. Further, it would be hard to name a tax that is entirely borne by the person who writes the check and lots of room for argument over who is ultimately bearing what tax burden.

On the new tax proposal I find myself potentially disagreeing with something Krugman wrote to the effect that this tax would not be a tariff. If the new tax is levied on the gross price of all imports but is only levied on the non-labor cost of production of domestic goods then it becomes a tariff to the extent it operates as a tax on the labor component of imports.

"If we're ever going to dramatically simplify, eliminate the corporate tax, really move to a broad-based consumption tax instead of an income tax, separate revenue raising from subsidies and transfers, and so on, if not now, when? Republicans, who have been talking about these things through their years in the wilderness, now have majorities in house, senate, and have the presidency. They let this chance slip with Bush II. Will it return?"

Consider banking regulation. First there was the Banking Act of 1933 (Glass Steagall). It managed to stick around for about 60+ years before being touched. Then there was the Gramm-Leach-Bliley Act of 1999. It managed to go untouched for less than 20 years. Finally, there is now the Dodd-Frank Act of 2010. And less than 10 years later, Congress is trying to monkey around with that. And each subsequent Act becomes more complex.

And you think that tax reform will be any different? I am in total agreement with Tyler Cowen on this one. Whatever Congress manages to dredge up from its 535 members and literally thousands of competing recommendations from economists and non-economists will be more complex, more convoluted, and just plain worse than what we have now.

Consider the conservative Mantra - "Doing nothing is always one option and many times the best option."

See https://taxfoundation.org/details-and-analysis-2016-house-republican-tax-reform-planIt appears that exporters will incur large "losses" as they will have large deductions and few assessable receipts. These will be carried forward with an uplift:"Restricts the deduction for net operating losses to 90 percent of net taxable income and allows net operating losses to be carried forward indefinitely, and increased by a factor reflecting inflation and the real return to capital. Does not allow net operating losses to be carried back."

For many exporters there will be little prospect of these ever being used - they will keep accruing what are effectively loans to the US govt. The efficiency gains from the tax reform will in part depend on the extent to which these losses are expected to eventually be recouped (and the extent to which the risk of default is built into the uplift rate).

For all you Americans reading this I can confirm what Absalon's description of the GST/HST in Canada is excellent. I can only add that the tax is very simple to administer. The monthly return that I fill out for our company is still essentially a 1 page document. (Well, a page and a half. The exemptions and loopholes are growing. But slowly - at least for now.) Our accounting package automatically captures all GST charged to customers or paid to vendors. Basically I remit the (or get a refund) on the difference.

I think the economic virtues of the tax are exactly why it is politically unpopular. You can't hide from it. It is hard to dodge it. I am afraid that people like loopholes. Maybe they think they are getting a deal. Maybe they think it is a game that they can "win". Despite all the John Cochrane's of the world telling them they can't.

John, Your statement about the 17.5% VAT seems implausible. I recall reading that the base of actual VATs is only about 40% of GDP. I'm not sure why, but I'd guess it excludes investment, government, education and housing services. Does anyone know?

Most VATs are not "pure", in that the base does not include all consumption. For example, Australia's excludes food, health, education and child care. It applies at a 10% rate and raises revenue of about 3.5% of GDP.

There is a nice article by Daniel Mitchell from Cato at the Foundation for Economic Education (FEE) about a study of the Australian corporate income tax. Apparently, the Australian Treasury undertook a study of cutting the corporate income tax, and, [get this], cutting government expenditure by a similar amount.

am I correct in thinking that a VAT punishes those most that have to spend the most of their income even with some tortured mechanism for deducting income? For example Warren Buffet spends a tiny fraction of his income on "stuff" where as the middle homeowner with 3 kids spends 105% of their income of "stuff". Wouldn't a flat low rate income/asset tax with almost no write offs be more fair? Why should other taxpayers pay more when a Billionaire donates to a cat charity where the director makes $500k for example. Charity should be that...not a grand write off scam. And don't even get me going on carried interested. Also why should business owner worth millions grow their company taxfree(long term gain) while joe six pack pays his income weekly!

am I missing something....about the VAT...for instance would charity pay a VAT?? I get the notion that a business owner selling something to a customer would be the tail end of the transaction....but lets say I know plenty of business owners that buy things sale tax free that aren't part of the business cycle. You know like the business owner flying to a ski holiday. Why does it seem the haves seem to do better than the have nots? VAT is not a fair tax in my estimation....too easy to avoid.

"VAT punishes those most...." I don't think of taxation as punishment. I think of taxation as mandated contribution to maintenance of the public underpinnings of the economy. Now if a poor person pays tax while a rich person pays for a personal cruise ship, then I think of that as punishing (the poor).On the other hand if someone like Warren Buffet consumes some stuff, and pays tax on that stuff while a poor person pays the same amount of tax on the same amount stuff, well OK so far. If one like Warren Buffet has a huge amount more income that he spends buying productive businesses then that can be OK too. Just as long as he is a good steward of that capital, those businesses. We certainly don't want capital owned by people who will sell it off in exchange for trinkets. Neither am I in favour of capital being owned by people who have machines buying it one millisecond and selling it the next millisecond. We need good stewards looking after things like container ships, buildings, factories and their contents.It is all a matter of stuff being shared. Some is needed for operating all the things that are better done by a government than by players in a market. Some things are better done one way, other things better the other way.I happen to be most convinced by Kotlikoff's arguments.A taxation system that is hugely complicated so that the most privileged can have personal cruise ships and airliners without contributing to tax revenue needs to go. The house tax plan, so far, looks like pussy-footing around the edges of the issue. R+R+R has the power to sweep away all the accumulated nonsense and install a simple system that serves all people reasonably fairly and efficiently. If they fail to do so they will prove, finally, that they are simply servants of privilege.--E5

As much as I usually enjoy your blogs, your analysis here misses a lot of important ideas. As you noted:

“Thus, a pure VAT of 17.5% with no Federal personal income tax, estate tax, excise tax, corporate tax, or anything else is revenue neutral… So if this tax needs to have a 30 percent rate just to generate 1.5% of GDP, its base must be tiny.”

The base of a VAT is all consumption, and the tax is applied at a uniform rate (ideally). But the base of a progressive consumption tax is not comparable to the base of a VAT, and the wage deduction is critical to this difference. By allowing firms to deduct wages, and then taxing those wages at a progressive rate, a Bradford X tax falls entirely on consumption but maintains some progressivity.-----“So, I infer that the tax base is only on interest and dividend payments… A tax that truly does not distort incentives to consume vs invest must not distort the individual decision to consume vs. save, no? (Or am I missing something here?)”

Under an actual Bradford X tax, the tax rate on investment income (capital gains, dividends and interest) is zero. Due to political constraints (on letting wealthy people pay no taxes), the Ryan-Brady plan reduces top rates on investment income by only taxing half of it. -----“The Trump campaign plan only mentions cutting the corporate rate to 15%. What are we talking about really? Or is this all a kerfuffle interpreting the latest tweets? Are we just making this up?”

Trump’s original plan was just massive tax cuts (except for single parents). After the primary, a few economists convinced him to alter his tax plan to look more like the House GOP’s plan, to let Trump claim the win but on a better tax plan than his original one. It is likely that any eventual plan will be based on the House plan.-----Holman Jenkins’ complaint is frankly absurd:

“In the short weeks since Mr. Trump was elected, the vision of clean, straight tax reform has gone out the window. Instead of merely lowering or, ideally, ending the corporate rate, we may get a 20% border-adjustment tax to go along with a 20% corporate income tax. That is, two taxes instead of one, which Congress can immediately start peppering with exemptions, exclusions and deductions.”

That is NOT two taxes; it is ONE tax that includes imports but not exports. As an additional note, a DBCFT is already vulnerable to WTO challenge, but filling the border adjustment with exemptions and exclusions would essentially guarantee a loss at the WTO, as the border adjustment must be uniform or it becomes a tariff.

The border adjustment has been a consistent source of confusion for the media. Alan Viard has an excellent forthcoming article in Tax Notes on the economics of the border adjustment; I suggest you read it.And as Greg Mankiw noted, the Ryan-Brady plan in effect repeals the corporate income tax and replaces it with a cash-flow tax.-----“Just what were the political constraints that went in to the better way tax plan?"

He would not make a plan that would lose too much revenue. On the individual tax side, the plan is surprisingly close to revenue-neutral; the business tax side loses revenue but also eliminates the most distortionary tax.

I’m sure Ryan would be fine with a VAT, but it’s too unpopular in the US to pull off. Democrats would hate it for being regressive, and Republicans are afraid that it would be too easy to raise. (I don’t like this line of argument, but they still use it.)

“a) eliminates the corporate income tax, the personal income tax, and the estate and gift tax, b) introduces a value added tax (VAT), a progressive personal consumption tax on top consumers that exempts consumption financed by labor income, an inheritance tax that kicks in after the receipt of $5 million, and a Co2 emissions tax of $80 per ton, c) eliminates the ceiling on the FICA payroll tax, and d) provides a $2,000 annual payment to each U.S. citizen.”

a & b) I wonder how they could enforce the progressive consumption tax on top consumers if they’ve repealed the personal income tax. A Bradford X tax does a more effective job of this using existing (modified) tax structures. By the way, his carbon tax is too high. The best existing research (EIA) puts the marginal social cost of carbon at $37 per metric ton. A carbon tax a twice the magnitude of the externality is just as bad as none at all.

c) In other words, a flat tax on wage and salary income. Keep in mind that higher FICA tax payments would also translate into higher Social Security payments, so such a provision would not raise as much revenue in the long run as it may initially appear.-----I recommend Progressive Consumption Taxation, by Alan Viard and Robert Carroll.

Cochrane writes (in critique of Summers), "Economists are supposed to first ...". But Summers is arguing public policy, of which economics is but one part.

There appears to be a pattern of clean-room, context-free policy thinking here. Corporate tax should be zero. Government regulation should be zero. With ideology sweeping away any possibility of net negative societal impact.

I find that whole exchange rate nullifies the effect of the border adjustment thing a bit hand wavy. How do we know savings and investment patterns aren't going to change? Wasn't that supposed to be the benefit of a VAT, that it encouraged saving? And the revenue from the import tax would be greater than the expenditures on the export subsidy, which would increase public savings. Even if this doesn't matter for a true VAT, the proposal allows deduction of wages, provided those wages are paid in the US. It may be true that the dollar takes care of everything, but I remain unconvinced.

As a Linux user (it made my life and work so much less stressful) I fully agree with all of what Frank just said.And it goes further. The complex tax code employs people (consumes labour, supposedly a "scarce resource") trying to figure out how much to pay and how to avoid paying so much. If the tax code were simple, and without loopholes, then that presently wasted labour could be turned to something productive. And, as the Professor has pointed out so often, productivity is not doing so well.

Analogies do break down, but here I was pointing out that enormous, mind numbing complexity arises in the private sector too, and for sound reasons.

I suspect, given the ideological leanings of the posters here, that if Microsoft were wholly owned by the government we'd be talking here about its "wasteful inefficiency" and "productivity sapping bloat."

It seems a "simple" flat tax of 20% would solve much of the fiscal and political problem. At 17.5 %, 3T in fed tax revenue doesn't cover 3.8T in mandatory and discretionary spending. My conjecture: 20% tax rate and greatly reduced regulation would bring about growth of 3.5% to 4%. Holding Fed spending at 3.8T, tax revenue of 4.16T brings a surplus of 36B. Hong Kong uses a flat tax. Hong Kong is disciplined as to its policies. Their constitution and tax system make it difficult for the government to increase taxes, increase taxes progressively, increase public spending as a percentage of GDP or operate at a deficit.

Power in the Legislature is divided across 21 political parties, but only 70 seats are available in the Legislature. That division of power makes it difficult for tax or spending policies to be adjusted to suit the whims of one particular group.

"the corporation pays $1 tax, and you then pay more personal income tax"I was told that the War of Independence was fought because of double taxation. I have never found out whether or not that is true. But it does seem to me silly that money can get taxed twice as it flows from value generator to value consumer.So it seemed very odd to me when I heard Ronald Reagan, in a speech while President, say that he wanted to eliminate the deduction, on federal income tax returns, for state income tax paid. Wouldn't eliminating it lead to double taxation? And didn't I just hear that being proposed again?--E5

come to think of it the corporate "double" tax (tax on corporation income followed by personal tax on dividends) is like the current personal income tax in which first the state takes its cut and then fed takes a percentage of what's left.If the deductibility of state tax (on federal return) were eliminated then both taxes are assessed on the full amount.--E5

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.

About Me and This Blog

This is a blog of news, views, and commentary, from a humorous free-market point of view. After one too many rants at the dinner table, my kids called me "the grumpy economist," and hence this blog and its title.
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!